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Few companies around the world have not tried to reinvent themselves — some more than once —during the past decade. Yet, for every successful corporate transformation, there is at least one equally prominent failure. GE’s dramatic performance improvement starkly contrasts with the string of disappointments and crises that have plagued Westinghouse. ABB’s ascendance to global leadership in power equipment only emphasizes Hitachi’s inability to reverse its declining fortunes in that business. And Philips’s successful revitalization since 1990 only highlights its own agonizingly slow turnaround in the preceding ten years.

What accounts for the success of some corporations and the failure of so many others? How did some organizations turn around transformation processes that had clearly stalled? In the course of five years of research into the nature and implications of the radically different organization and management models that have begun to emerge during the past decade, we studied more than a dozen companies as they implemented a succession of programs designed to rationalize their inefficient operations, revitalize their ineffective strategies, and renew their tired organizations. In the process, we have gained some insight into the reasons that some made recognizable progress in their transformational change process while others only replaced the dead weight of their bureaucracies with change program overload.

In observing how the successful corporate transformation processes have differed from those that struggled or failed outright, we were struck by two distinctions. First, successful transformation processes almost always followed a carefully phased approach that focused on developing particular organizational capabilities in appropriate sequence. Second, the managers of the successful companies recognized that transformation is as much a function of individuals’ behaviors as it is of the strategies, structures, and systems that top management introduces. As a result, rather than becoming preoccupied with downsizing and reengineering programs, they focused much attention on the changes required to fundamentally reshape what we described in our previous article as a company’s behavioral context.1

A Phased Sequence of Change

The problem with most companies that have failed in their transformation efforts is not that they tried to change too little, but that they tried to change too much. Faced with the extraordinary demands of their highly competitive, rapidly changing operating environments, managers have eagerly embraced the flood of prescriptive advice that consultants and academics have offered as solutions — typically in the random sequence of a supply-driven market for management fads.